Which clients really benefit from increases in TSFA contributions

by Jordan Maxwell11 Mar 2015

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Which clients really benefit from increases in TSFA contributions

One advisor is anticipating growing client demand for TSFAs when the federal government moves to raise limits, suggesting the industry will need to promote the benefits that accrue to modest-income Canadians focused on RRSPs.

“RRSPs are just not the best solution for people anymore, especially with TFSAs and as clients’ understanding of them grows,” said Ted Rechtshaffen, an advisor with TriDelta Financial, told WP in an interview. “If you’re making less than $45,000, it’s a good option as well. Middle-income and higher income Canadians are the ones benefitting and if the government raises the annual contribution limit, I see its popularity growing.

His comments come as the Bank of Montreal reported that 57 per cent of Canadians made an RRSP contribution this year compared to 65 per cent of Canadians in 2014.

Many advisors are attributing the decline to the growing popularity of TSFAs.

While study also found that Canadian contributed an average of $3,737 this year, which is approximately $200 more than what was contributed by Canadians in the past two years, some advisors are concerned.

"While it's great to see that a majority of Canadians contributed this year and that the average contribution size is higher than in previous years, it's a concern that the percentage of those who put money towards their RRSPs is down," said Chris Buttigieg, senior manager, wealth planning strategy, BMO Financial Group, in the report.

Advisors are finding that fewer and fewer clients are contributing to RRSPs but they’re also spending more time investing in TFSAs because they representing a better option for Canadians as they begin to educate themselves on the advantages.

Ian C.W. Russell, CEO of IIAC, is one of many weighing in on the debate in a recent op-ed in the Financial Post. His arguments are similar to those from Rechtshaffen but it's a point that advisors must be making to modest income Canadians as well.

“We see a majority of people, who if they are saving, it’s from their pensions,” said Rechtshaffen. “Most people don’t have enough money to save for both and if you make $45,000 or less, you probably shouldn’t be putting money into RRSPs anyway.”

With TFSAs becoming a more attractive option for middle-aged and especially young Canadians, many advisors expect this trend to continue.

Of those who did not contribute, 38 per cent said they did not having enough money while 25 per cent said prioritizing other expenses; another 21 per cent said that using other types of investments, such as the tax-free savings accounts, was more useful to them.